Vanguard Treasury Money Market Fund is closed to new investors

TheShadow

https://www.sec.gov/Archives/edgar/data/891190/000168386320003566/f3655d1.htm

497 1 f3655d1.htm VANGUARD TREASURY MONEY MARKET FUND 497


Vanguard Treasury Money Market Fund

Supplement Dated April 16, 2020, to the Prospectus and Summary Prospectus Dated December 20, 2019

Vanguard Treasury Money Market Fund (the "Fund") is closed to all new investors (with the exception of participants who invest in the Fund only through defined contribution plans that offer the Fund as an existing option).

The Fund will remain closed until further notice and there is no specific timeframe for when the Fund will reopen. During the Fund's closed period, all current shareholders may continue to purchase, exchange, or redeem shares of the Fund online, by telephone, or by mail.

The Fund may modify these transaction policies at any time and without prior notice to shareholders. You may call Vanguard for more detailed information about the Fund's transaction policies. Participants in employer-sponsored plans may call Vanguard Participant Services at 800-523-1188. Investors in nonretirement accounts and IRAs may call Vanguard's Investor Information Department at 800-662-7447.

TheShadow

From Vanguard's pressroom:

https://pressroom.vanguard.com/news/Press-Release-Vanguard-Closes-Treasury-Money-Market-Fund-New-Investors-041620.html

VintageFreak

Is this a good or bad thing? Should I just sell and move to Federal Money Market which is my cash fund?

msf

Vanguard says this is to preserve yield as rates on Treasury paper plummet. If there isn't a lot of money flowing in (net), the fund doesn't have to buy a lot of low yielding notes all at once. So closing is a good thing for existing investors.

Based on that, I would expect it to reopen in 3-6 months, when most of the portfolio has turned over. By then, rates should have stabilized (at 0?). So even if it has to buy more paper after reopening later, that shouldn't hurt the yield.

I could have sworn that this fund was yielding around 1.2% not long ago. It's now down do 0.63%. So one can understand Vanguard's interest in doing what it can to slow the decline.

Even now, that 0.63% is so low that I'd rather keep money in a bank account. There are several yielding 1.5% or better.

VintageFreak

msf said:

Vanguard says this is to preserve yield as rates on Treasury paper plummet. If there isn't a lot of money flowing in (net), the fund doesn't have to buy a lot of low yielding notes all at once. So closing is a good thing for existing investors.

Based on that, I would expect it to reopen in 3-6 months, when most of the portfolio has turned over. By then, rates should have stabilized (at 0?). So even if it has to buy more paper after reopening later, that shouldn't hurt the yield.

I could have sworn that this fund was yielding around 1.2% not long ago. It's now down do 0.63%. So one can understand Vanguard's interest in doing what it can to slow the decline.

Even now, that 0.63% is so low that I'd rather keep money in a bank account. There are several yielding 1.5% or better.

I moved money from Vanguard Prime to this fund because it would be "safer". I need to move it to high interest money market I guess. Or make some other plans.

Old_Joe

Suggestion: Buy good copier, print your own. The government is already running at full output, so they'll likely appreciate the help.

TheShadow

Just found Fidelity closed three of its money market funds a couple of weeks ago (sorry if this was already posted previously):

https://www.pionline.com/investing/fidelity-closes-3-money-market-funds-new-investors

or

https://www.nasdaq.com/articles/fidelity-shuts-three-money-market-funds-to-most-new-investors-2020-03-31

or

https://finance.yahoo.com/news/fidelity-shuts-three-money-market-205320236.html

Derf

To much "money" & not enough goods !
Derf

msf

VintageFreak said:

I moved money from Vanguard Prime to this fund because it would be "safer". I need to move it to high interest money market I guess. Or make some other plans.

The closing of a fund is a change, and change automatically suggests risk. Here the purpose of the change is to address the risk of declining yields, not the risk of loss (safety).

Risks to a MMF include:

- Securities defaulting. Zero risk in a Treasury fund, regardless of whether fund is closed.

- Gating and/or redemption fees. Not on most government funds including Treasury funds.

- Too much money flowing in, forced to buy lower yielding securities. Closing "fixes" this.

- Too much money flowing out, forced to liquidate in a fire sale.

Clearly that last one isn't a risk now, else these funds would not close to new investors. But even if it were, the fact that market rates are declining means that the securities would if anything fetch a premium if the fund were forced to sell.

As noted, it is risk to yield that the closing of these funds is addressing. Rates are dropping. All a fund can do now is to slow the impact by purchasing as little as possible of newer, lower yielding securities. Nevertheless, as the portfolios turn over naturally, the funds' yields will still drop.

An alternative for addressing the risk of declining rates is a penalty-free CD. This is a CD thats lock in your rate for the term of the CD, but allows you to get your money out without penalty. FDIC insured, so it is virtually as safe as a fund filled with Treasuries.

It is slightly less liquid because (a) you can't get your money out for the first week, (b) a withdrawal is all or nothing, you must close the CD, and (c) you can't add money to them.

These restrictions are better viewed as limitations on flexibility, not liquidity, since you can get your money out at nearly any time. There's no yield risk; should rates go up, you can always close these CD and buy new ones at higher rates.

https://www.depositaccounts.com/blog/best-no-penalty-cd-rates.html

VintageFreak

@msf - I started another thread on using options to generate income instead. Marcus and Amex Personal Savings are FDIC insured and yielding around 1.5%. Vanguard Prime is yielding around 0.6, Treasury MM little lower. There was as a Time Prime was yielding more than the FDIC insured accounts which is why I had parked my cash there - cash I need to pay college tuitions.

Right now, I'm thinking of moving it to one of the above two FDIC insured Bank MMs. Unless I hear what I want to hear in my other thread and want to try and eke out a bit more return with as low a risk as possible.